Monday
One example of a speculative bubble that gets mentioned sometimes is the Dutch Tulip Bubble of the 17th Century. I have occasionally come across the argument that says that this bubble, like some others, cannot be blamed on expansion of the money supply, ergo, those hairshirt Austrians banging on about the evils of elastic money are wrong, there are sometimes bad things that happen in capitalism and we need laws against it, etc, etc.
But according to this guy at the Mises Institute, even the mania for tulip bulbs in the Netherlands had a monetary cause. So that's that issue settled then.
Never mind. My bad. False expectations.
I think I'd heard that about the tulip bubble before. Bubbles are basically an amalgamation of excess cash and mob behavior.
Posted by Richard Thomas at January 23, 2012 11:22 PM
Like I said before, bubbles happen when people confuse price with value, so that higher prices show rising value, justifying higher prices yet, until... they don't.
Posted by PersonFromPorlock at January 23, 2012 11:41 PM
Them Dutch have done everything first! Speculative bubbles, modern paper banking, colonising New amsterdam (now called New York). If there had been more of them, they might have had their own Napoleon....
Posted by 'Nuke' Gray at January 23, 2012 11:50 PM
PFP: True to a first order but it has to be said there is some value in something I can pay $6 for today and sell for $8 tomorrow. The trick is to be the one not holding the bag when the music stops. The better trick is to be the one charging commission on the sale.
Posted by Richard Thomas at January 24, 2012 04:15 AM
"there is some value in something I can pay $6 for today and sell for $8 tomorrow."
If you really think that, RT, you need to scroll down the SI screen two articles and watch the Madsen Pirie video.
Posted by Laird at January 24, 2012 05:55 AM
An interesting article.
However, the Dutch tulip "bubble" was still (even if the article is fully correct) a rather different thing from modern credit money bubbles.
The central feature of modern bubbles is (as Ludwig Von Mises pointed out - basing his work on study that goes all the way back to Richard Cantillon in the 1700s) is the effort to reduce interest rates.
The quest for "cheap money" - either by governments increasing the money supply, or by govenrments winking at banks increasing the credit supply (by lending out "money" that no one really saved).
Not a "fraction" of savings - unless people think of (say) "one hundred tenths" as a "fraction" (technically it is - but a six year old could see there is something wrong).
If someone says "I have X amount of money to lend" he should be able to positively respond to the request to "please SHOW ME this money".
If the only "money" the money lender can show is numbers in a ledger book (or numbers on a computer screen) then something is wrong - very wrong.
Just as wrong (although in a different way) as the government using a printing press to create new "money" and lend it out.
At least the tulips were real.
When the price collapsed one at least had nice looking flowers (from the bulbs).
If it is just numbers on a computer screen one can end up with NOTHING.
At that is the way things are going.
Posted by Paul Marks at January 24, 2012 03:16 PM
A bubble happens when there excess or misplaced confidence. And that is natural. The process of discovering the limits of efficiency is what makes bubbles.
It can happen in Free Market or in a Statists ones.
It just needs that everyone thinks the same.
A big bubble - these are the dangerous ones- happens when there is excess of confidence for a long time.
And it is usually manipulated by politics.
Keynesian politics.
It happens much more frequently and worse is much more damaging in Statists ones.
Posted by lucklucky at January 27, 2012 01:43 AM
Normally, in the modern world always, a "bubble" is a PHYSCIAL thing.
It is the creation of vast amounts of money by the Central Bank and the banking system.
Where the money then goes may be a matter of "confidence" - but the money itself is not.
Of course (to confuse things) most of the money created by the Bank of England and the other Central Banks (and the credit created by their pets the commercial banks) is not notes or coins - it exists only as numbers in ledgers and on computer screens.
However, that is still a physical matter.
Posted by Paul Marks at January 29, 2012 09:53 PM
